Correlation Between Song Hong and DOMESCO Medical

Can any of the company-specific risk be diversified away by investing in both Song Hong and DOMESCO Medical at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Song Hong and DOMESCO Medical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Song Hong Construction and DOMESCO Medical Import, you can compare the effects of market volatilities on Song Hong and DOMESCO Medical and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Song Hong with a short position of DOMESCO Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Song Hong and DOMESCO Medical.

Diversification Opportunities for Song Hong and DOMESCO Medical

0.28

Correlation Coefficient

Song Hong  DOMESCO Medical

Modest diversification

The 3 months correlation between Song and DOMESCO is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Song Hong Construction and DOMESCO Medical Import in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOMESCO Medical Import and Song Hong is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Song Hong Construction are associated (or correlated) with DOMESCO Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOMESCO Medical Import has no effect on the direction of Song Hong i.e., Song Hong and DOMESCO Medical go up and down completely randomly.

Pair Corralation between Song Hong and DOMESCO Medical

Assuming the 90 days trading horizon Song Hong Construction is expected to generate 0.79 times more return on investment than DOMESCO Medical. However, Song Hong Construction is 1.27 times less risky than DOMESCO Medical. It trades about -0.03 of its potential returns per unit of risk. DOMESCO Medical Import is currently generating about -0.31 per unit of risk. If you would invest  770,000  in Song Hong Construction on December 5, 2024 and sell it today you would lose (10,000) from holding Song Hong Construction or give up 1.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	86.36%
Values	Daily Returns

Song Hong Construction  vs.  DOMESCO Medical Import

Song Hong Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Song Hong Construction has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Song Hong is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

DOMESCO Medical Import

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DOMESCO Medical Import are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, DOMESCO Medical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Song Hong and DOMESCO Medical

The main advantage of trading using opposite Song Hong and DOMESCO Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Song Hong position performs unexpectedly, DOMESCO Medical can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in DOMESCO Medical will offset losses from the drop in DOMESCO Medical's long position.

The idea behind Song Hong Construction and DOMESCO Medical Import pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.